529 college savings plan

An investment account that provides tax benefits to help accumulate funds for education. It provides tax-free earnings when properly used.

529 prepaid tuition plan

A deposit account that provides tax benefits to help accumulate funds for education. It provides protection against the rising cost of tuition.

adjustable-rate loan

Also known as a variable-rate loan, usually charges a lower initial interest rate than a fixed-rate loan. The interest rate fluctuates over the life of the loan based on market conditions, but the loan agreement usually sets maximum and minimum rates. When interest rates rise, generally so do your loan payments; and when interest rates fall, your monthly payments may be lowered.

adjusted gross income

Income less certain deductions and expenses (including those related to education). It is the amount on Line 21 of IRS Form 1040A (or Line 4 on 1040EZ or Line 35 on 1040). This amount is used for several purposes, including eligibility for tax benefits.


The person appointed by the court to manage the estate of the decedent.

ancillary probate

Administration of property that the deceased owned in a different state than the one in which the estate is being administered.

annual percentage rate (APR)

The cost of credit expressed as a yearly rate. The APR includes the interest rate, points, broker fees and certain other credit charges that the borrower is required to pay.


A series of equal periodic payments, such as the interest on a bond.


Any item that is owned and has value. Assets include cash, investments, homes and vehicles owned.

asset allocation

Diversification of your investments, usually between U.S. and international equities, fixed income, real estate and commodities.


An automated teller machine at which cash may be withdrawn or deposits made or other banking-related transactions completed.


The person who receives the benefits or gifts from an estate, insurance policy, IRA, pension plan or trust.


An investment security for which a government or corporation promises to pay an amount at maturity (usually more than five years in the future), with interest, in return for the current investment. A bond is a tradable security. The minimum investment in most bonds is $1,000.

brokerage account

An account at a securities firm that can be used to buy, hold and sell equities and fixed-income investments. Brokerage accounts are not insured against loss of your investment.

certificate of deposit

A promise by a bank to pay an amount at maturity (usually from one month to seven years in the future), with interest, in return for a deposit of funds. You will lose interest if you take back your deposit before maturity.

closed-end mutual fund

A mutual fund with a fixed number of shares that may be bought and sold like a stock.


A document used to modify an existing will. A codicil must be executed with all of the same legal formalities required for a will. If you wish to make changes to your will, you should seek the advice of an attorney who practices in the area of estate planning to determine if it is better to execute a codicil or make a totally new will.


The amount charged by brokerage firms to purchase or sell securities.

common stock

An equity share in the ownership of a company. There is no guarantee that the money paid for the stock will be returned or that there will be any dividends paid. Common stockholders are last in line if the company is unable to pay its obligations.

community property

Some states treat property in a marriage as owned equally by both spouses, even if titled in only one spouse's name. Therefore, property distribution rules are different concerning the percentage the surviving spouse and others will receive. If you have ever resided in a community property state, you should consult the local rules; however, couples can agree ahead of time as to the distribution of property and need to file appropriate legal documents in support of the agreement. Also, property acquired in a community property state may maintain its community property status even if the couple moves to a noncommunity property state.

compound interest

Interest earned on interest. When interest is earned on an investment and that interest is reinvested, it becomes part of the principal of that investment. The next interest calculation is based on this increased principal. Compound interest results in a higher future value than simple interest.

convenience account

An account where the owner adds another person to his or her account solely for the purpose of signing privileges-no survivorship rights are assumed.

conventional loan

A mortgage loan that is not insured or guaranteed by a government agency such as the FHA (Federal Housing Administration), the VA (Veterans Administration), or the Rural Development Services (formerly known as Farmers Home Administration, or FmHA).

Coverdell Education Savings Account

A deposit or investment account that provides tax benefits to help accumulate funds for education.

credit risk

The risk that money loaned to another will not be repaid. Obligations of the U.S. Government are considered to have no credit risk.

credit union

A not-for-profit financial institution that is owned by its members. Credit unions offer many of the same services as banks at lower costs. They may also pay higher interest on deposits. To open an account at a credit union, you must qualify for membership.

death certificate

A legal document produced by the states showing that a person has died. It is used to obtain proceeds from life insurance policies and to show the probate court that the probate process should begin.

debit card

A bank card, usually issued by Visa or Mastercard, that may be used like a credit card. However, amounts charged are immediately deducted from your deposit account.


A deceased person.

Deductible IRA

An Individual Retirement Account where you can deduct the contributions off of your taxes when you file them the following year.


A downward trend in prices; the opposite of inflation.

deposit account

An account at a bank or credit union that may pay interest and is usually insured against loss.


The process of computing how much you need to set aside today to reach a future amount, based on interest-rate assumptions.


Holding several investments that have different risks. The concept of "Don't put all your eggs in one basket." The chance that a single stock or other investment will lose money is offset by the chances of your other stocks and investments making money.

dividend reinvestment

An arrangement that allows dividends on stocks or mutual funds to be used to purchase additional shares of the stock or mutual fund. A way of compounding the return on your investment.

dividend reinvestment plan (DRIP)

An arrangement that combines dividend reinvestment with the opportunity to purchase additional shares of stock directly from the company at a reduced price.

dollar cost averaging

The process of purchasing stocks or mutual funds periodically at different market prices. Over long periods of time, the average cost of your shares tends to be less than the current market price.


A person's permanent home. The place where a person lives and intends to live for the indefinite future. Sometimes called legal residence. At any one time a person can have only one domicile.


Same as grantor.

down payment

The amount of cash that a purchaser needs to put toward the cost of a home, automobile or other large purchase that is being financed (taking out a loan).

durable power of attorney

A power of attorney that remains valid when the principal becomes incapacitated.

equity security

A share in the ownership of a company, usually in the form of common stock. It may also be preferred stock.


The person appointed by the will to manage the estate of the decedent, as compared to the administrator, who is appointed by the court.


Feminine form of executor.


Federal Deposit Insurance Corporation; a federal government agency that insures deposits in banks and savings banks up to $250,000 through December 31, 2013.

fixed income investment

An investment that promises to pay a set rate of interest. These include deposit accounts—such as certificates of deposit—as well as bonds and notes.

fixed-rate loan

A loan with a set or fixed rate of interest. Both the interest rate and the monthly payments (for principal and interest) stay the same during the life of the loan. Fixed-rate loans generally have repayment terms of 15, 20 or 30 years.

front-end load

A commission paid on the purchase of a mutual fund.

future value

The amount that a sum of money will grow to in the future as a result of interest.


The person who establishes a trust and transfers property to the trust.

home of record

For a member of the military service, the domicile of the person when he or she entered the service.

Individual Retirement Account (IRA)

A deposit or investment account that provides tax benefits to help accumulate funds for retirement.


An upward trend in prices; the opposite of deflation.

insured deposit account

An account at a bank or credit union that is insured against loss of up to $250,000 through December 31, 2013.

interest rate

The cost of borrowing money expressed as a percentage rate. Interest rates can change because of market conditions.


Dying without a will that disposes of the estate. Partial intestacy is when a person disposes of less than all of the estate by a will.

intestate succession

The disposition of an estate in accordance with the laws of descent and distribution.

joint account

A bank, credit union or brokerage account owned by more than one individual. Either party may transact business. Accounts can be with or without survivorship rights. State laws vary on rights of survivorship for this kind of account. Some states may or may not automatically apply survivorship rights to joint owners; some states look to the wording of the contract when the account was opened.

joint representation

When one attorney represents more than one person at the same time. An example is in the preparation of estate plans for spouses. This arrangement causes difficulty if the spouses have differing legal interests or do not wish to disclose information to one another. For example, one spouse may not wish to disclose to the other information about children born of a prior relationship. Joint representation may be possible if there is full disclosure and understanding of possible conflicts and each spouse consents to the representation. Also called concurrent representation.

joint tenancy with the right of survivorship

Ownership by more than one person so that when one owner dies, his or her ownership share is divided equally among surviving joint tenants. Note that owning property as joint tenants without specifying "with the right of survivorship" is treated as tenancy in common in some jurisdictions. Compare to tenancy in common and tenancy by the entireties.

joint will

One document for two people (often husband and wife). Problems can arise with this arrangement because the will may be introduced as evidence of a contract to agree, thereby hampering any efforts of one spouse to revoke the joint will to have a separate will written.

legal residence

Same as domicile.

letter of administration

The formal document issued by a probate court to an administrator, giving the administrator the power to carry out his or her duties, such as taking control of the decedent's property.

letters of testamentary

The formal document issued by a probate court to an executor, giving the executor the power to carry out his or her duties, such as taking control of the decedent's property.


To convert an asset into ready cash.


How quickly you can turn your investment into ready cash.

living trust

A trust that is established while the grantor is still alive. Compare to testamentary trust.

loan origination fee

A fee charged by the lender for processing the loan; often expressed as a percentage of the loan amount.


A written agreement guaranteeing a home buyer a specific interest rate on a home loan, provided that the loan is closed within a certain period of time, such as 60 or 90 days. Often the agreement also specifies the number of points to be paid at closing.


An organized trading place (physical or electronic) on which securities may be purchased and sold by members. Individuals usually have access to a market through a brokerage or securities firm.

market risk

The chance of losing money on an investment because the price of the asset changes.

matching contribution

An amount that an employer may pay into a retirement account, such as the TSP, based on a percentage of the amount that the employee contributes.


Medicaid is a government-sponsored health insurance program for eligible, low-income individuals in each state.

medical power of attorney

A power of attorney that grants powers to make medical decisions for the principal.


Medicare is an entitlement program funded primarily by payroll taxes. It provides health coverage for seniors and disabled Americans

money market account or money market mutual fund

A highly liquid investment that pays a short-term rate of return.


A document signed by a borrower when a home loan is made that gives the lender the right to take possession of the property if the borrower fails to pay off the loan.

municipal bond

An investment security for which a state or local government promises to pay an amount at maturity (usually more than five years in the future) with interest, in return for a current investment. Municipal bonds are generally tax-free, but not always.

mutual fund (open-end)

A type of investment that pools the money of many individuals and acquires a portfolio of securities that is owned proportionally by each investor.


National Credit Union Administration; a federal government agency that insures deposits in credit unions up to $250,000 through December 31, 2013.

no-load fund

A mutual fund that does not charge a front-end load or up-front commission. However, some funds referred to as "no-load" charge a redemption fee ("back-end load") or a distribution fee ("12-b-1 fee").

nondischargable debts

Debts that can't be erased through a Chapter 7 bankruptcy filing.

nonsystematic risk

Risk that any single stock or other investment will lose money (or go to zero).


A promise to pay; similar to a bond but for a shorter term—usually payable in 10 years or less.

payable on death

Designation on assets such as bank accounts that indicates who is to receive the asset upon the death of the principal. Often designated as POD or TOD (transfer on death).

personal representative

The person who manages the decedent's estate; interchangeable with administrator or executor.


Fee paid to the lender for the loan. One point equals 1 percent of the loan amount (or $1 for every $100 of loan). Points are usually paid in cash at closing. In some cases, the money needed to pay points can be borrowed, but doing so will increase the loan amount and the total cost.


A collection of securities assembled for an investment goal.

power of attorney (PoA)

A legal document allowing a person to act for another.

preferred stock

An equity share in the ownership of a company having a higher claim than common stock. There is no guarantee that the money paid for the stock will be returned or that there will be any dividends paid. However, dividends must be paid on preferred stock before they may be paid on common. Preferred stockholders are in line ahead of common stockholders but behind creditors if the company is unable to pay its obligations.

present value

Money, expressed in today's dollars.


An amount of money borrowed or loaned on which interest will be computed.

private mortgage insurance (PMI)

Protection for the lender against a loss if a borrower defaults on a loan. It is usually required for loans in which the down payment is less than 20 percent of the sales price or, in a refinancing, when the amount financed is greater than 80 percent of the appraised value.

probate property

Property that is subject to distribution by the probate process. The table in the Estate Planning section shows property that is subject to probate.


The exclusive right to own, possess, enjoy and dispose of anything of value. All property is either real or personal. Real property consists of land, buildings, and other things permanently attached to the land. Personal property consists of all property that is not real property and is either tangible or intangible. Items of tangible personal property are objects that have value in themselves, such as furniture, jewelry, cars, pets and computers. Items of intangible personal property represent things of value, such as cash, stocks, bonds, patents and trademarks.

real estate investment trust (REIT)

A type of investment that pools the money of many individuals and acquires real estate or mortgages that are then owned proportionally by each investor.


To change the mix of securities in a portfolio so that it matches a desired asset allocation.


The place where a person resides. A person can have multiple residences at any one time. See domicile.


The earnings of investments—interest, dividends and price changes—usually expressed as a percentage.

right of survivorship

An arrangement that provides that when one party to a joint account dies, the other party inherits the balance.

risk tolerance

The amount of market and credit risk that an individual is willing to take on in pursuit of a higher return.

Roth IRA

An Individual Retirement Account funded with after-tax contributions; withdraws after the account has been open for five years and age 59½ are income and penalty tax free.


Accumulating funds by delaying or foregoing consumption.

savings bond

A promise by the U.S. government to repay principal and a return in the future. The return may be based on government note rates or on the rate of inflation plus a small fixed rate. Savings bonds are available for as little as $25.


Investments that may be purchased and sold on a market.


Same as grantor.

share purchase plans

An arrangement in which you can buy stock directly from a corporation, usually at a lower cost and for lower amounts than through a brokerage firm. If the stock pays a dividend, reinvestment is offered. This is similar to a DRIP, but this arrangement allows you to buy your first share directly.

springing power of attorney

A power of attorney that takes effect at a predetermined time or at a particular event (such as disability).

step-up CD

A certificate of deposit that benefits the investor if interest rates go up. You are allowed to adjust the rate on your CD (to a higher market rate) one time during the CD's term.


Securities representing equity ownership in a corporation.

systematic risk

Risk that the overall market will decline as prices and interest rates change.

tax-deferred earnings (investments)

Earnings on which taxes are not paid until a future date, usually when funds are withdrawn. The TSP and traditional IRAs are examples of vehicles that offer tax-deferred earnings.

tax-exempt earnings (investments)

Earnings on which taxes are never paid. Roth IRAs and municipal bonds are examples of vehicles that offer tax-exempt earnings.

tax-free earnings (investments)

See tax-exempt earnings.

tenancy by the entireties

Very similar to joint tenancy with right of survivorship. This form of ownership can exist only between married couples. It is not available in all states. It prevents the creditors of one spouse from taking one-half of the property to settle a debt.

tenancy in common

Ownership by more than one person so that when one owner dies, his or her ownership share passes to the person's heirs or beneficiaries, and not automatically to other tenants. Compare to joint tenancy with right of survivorship and tenancy by the entireties.

testamentary trust

A trust that is established by will. Compare to living trust.


The person who writes and signs a will.


Feminine form of testator.

Totten trust

A savings account that allows the depositor to open the account as trustee for someone else (no real trust is set up). Account owners may use the funds as they see fit during their lifetime, and then upon their death the account balance is paid to the named beneficiary.

transaction, settlement, or closing costs

Fees associated with taking ownership of property. They may include application fees; title examination, abstract of title, title insurance and property survey fees; fees for preparing deeds, mortgages and settlement documents; attorneys' fees; recording fees; and notary, appraisal and credit report fees. Under the Real Estate Settlement Procedures Act, the borrower receives a good faith estimate of closing costs at the time of application or within three days of application. The good faith estimate lists each expected cost either as an amount or a range.

transfer on death

See payable on death.


The person who receives legal title to the assets in the trust but is legally obligated to hold, manage and invest the trust assets for the benefit of the beneficiaries. The trustee's duties are set by the trust agreement and by law. Trustees who fail in their fiduciary duties can be sued and may be held liable for their actions and damages.

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